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November 2010 | www.selectasset.com
Your Japanese Pension and Dreams of Future Payouts

Some people retire at 60 and play golf or travel.  Others donate time and experience to worthy non-profits.  What connects these two lifestyle choices?  Answer: both usually require a monthly income long after regular employment has ceased.  However, for most of us this level of financial security doesn't happen overnight - that's why we believe saving for your retirement lifestyle is a long-term proposition.

- WHAT IF YOU'VE LIVED AND WORKED ABROAD?

Understanding the details of pension and retirement planning in just one country can be hard enough.  Dealing with both Japanese AND home country retirement rules can be even trickier.
 
Here at Select, successful foreign professionals often ask us about the merits of the two main Japanese pension arrangements. The basic facts are as follows:

a) Kokumin Nenkin (National Pension)

Residents of Japan, between 20 to 59 years old, are legally required to enroll
Fixed, monthly contributions (Yen 14,660 as of July'09)
Monthly contributions are deducted automatically by your employer
Eligible for payments (usually) from age 65 after at least 25 years of contributions
Leave Japan and you'll get back only a small proportion of contributions made

b) Kosei Nenkin (Employees Pension)

Regular employees are enrolled in the Employees Pension scheme
Contributions are salary dependent and matched by employers

- SHOULD FOREIGNERS RETIRE IN JAPAN?

The answer partly depends on your financial circumstances but if you're planning to rely heavily on the Japanese National Pension, consider this fact:

If you were eligible today, even after 40 years of regular contributions you'd still get under 800,000 Yen annually.

Put another way: could you live here on less than $750 - $850 a month?  And remember, most foreigners haven't paid in for 40 years, so they're going to receive even less.

- WHAT IF YOU DON'T HAVE 25 YEARS OF JAPANESE PENSION CONTRIBUTIONS?

If you plan to be a long-term resident of Japan and have also paid into your home country's national pension scheme, there may be a ray of light.  Some countries have bilateral Social Security agreements with Japan.  And that means the enrollment periods in your own country's pension scheme might be counted when calculating contributing years in the Japanese one.

For example, 5 years of appropriate contributions in your home country plus 20 years in Japan would take you past the 25 years qualifying line for receiving a Japanese pension after age 65. (However your monthly pension amount will probably be based on just the 20 years of Japanese contributions.)

- WILL THE JAPANESE NATIONAL PENSION GO 'KA-BOOM'?

The scheme itself is probably 'safe'.  The big unknown is how much will it actually pay out to people retiring 30 years from now.  Two problems are looming on the horizon:

1) Over-optimistic fertility rates calculated for Japanese females.  Put bluntly, women are not having enough babies and this is presenting Japan with a demographic time bomb that threatens to drastically reduce the currently guaranteed pension payouts.

2) Japan's graying population - people are living longer and drawing pensions over longer time periods than were ever anticipated.

Both problems require a political response that will not be easy to make - since whatever the government does is going to be deeply unpopular to an aging population expecting a reasonable pension in their twilight years.

- ARE YOU READY TO PAY MORE FOR LESS?

The government could slash pension benefits by moving the goal posts e.g. base the payout on some other figure than the average workers net income.

They could also raise contributions from the existing (and future) workforce.  This idea has already alarmed Japanese people in their 20s and 30s who realize they are paying into a system they may never get much out of.  Some Japanese commentators have speculated that this is why so many self-employed people (including students and part-timers) are 'illegally' dropping out of the scheme.

Increasing the minimum payout age from 65 to (say) 70 is also on the agenda, forcing many older people to consider work longer than planned.

- YOUR NEXT STEP

Current Japanese pension goals are becoming more and more unrealistic as time goes on.  For foreigners based in Japan and with 30 plus years of working life ahead of them, now is the ideal time to be planning alternatives to increasingly frail state pension plans.

Why not take control of your family’s financial future with the help of Select Asset Management KK?
Contact Select today to organize a one on one confidential financial review.

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